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Revisiting the Electricity Consumption-Growth Nexus for Portugal: Evidence from a Multivariate Framework Analysis

Tang, Chor Foon and Shahbaz, Muhammad (2011): Revisiting the Electricity Consumption-Growth Nexus for Portugal: Evidence from a Multivariate Framework Analysis.

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Abstract

The aim of present paper is to re-investigate the long-run and causal relationship between electricity consumption, income, financial development, population and foreign trade in Portugal using the bounds testing approach to cointegration within the unrestricted error-correction model (UECM). The Granger causality test within the Vector Error-Correction Model (VECM) was conducted to examine the direction of causality. This study covered the annual sample of 1971 to 2009. Our empirical evidence supports the presence of a long-run relationship between the variables in Portugal. Moreover, the results indicate that increase in real income, financial development, population and foreign trade has positive impact on electricity consumption in Portugal. In addition, the overall Granger causality results exhibit bi-directional causal relationship between electricity consumption, real income, and population while uni-directional causality is running from financial development to electricity consumption. In this respect, Portugal is an energy dependent country, thus energy conservation policy (growth policy) may adversely affect the economic growth (environment or pollution) in Portugal. Ultimately, the Portuguese government should encourage research and development on technological innovation for energy savings without affecting economic development in Portugal.

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